Navient Readies $941M Bonds Backed by Rehabbed FFELP

Navient Student Loan Trust 2017-2 is backed by federally guaranteed student loans that were once delinquent but are now making timely payments, according to DBRS.

The trust will issue a single, $921.4 million tranche of notes with preliminary AAA ratings.

While rehab loans benefit from the same guarantee as loans that have always been current, they have historically exhibited much higher cumulative defaults. Moreover, they tend to default quicker than non-rehab loans, according to DBRS. “This increases the liquidity risk of the transaction because a more significant concentration of loans is expected to be non-performing,” the presale report states.

On the plus side, the Department of Education is less likely to reject a default claim on a rehabbed loan.

Approximately 77.3% of the student loans are in repayment with a weighted average in-repayment seasoning of approximately 15 months. Borrowers first entering repayment have historically defaulted at a higher rate than borrowers who have been in repayment for some time.

Navient Solutions is the nation’s largest servicer of student loans, with a portfolio of more than $300 billion as of December 31, 2016. It has services student loans for over 20 years.

In the sponsor's previous FFELP securitization, completed in February, just 20% of the loans used as collateral were rehabbed.

Other recent rehabbed FFELP securitizations include a $409 million offering from ECMC this month.

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